Compensation With or Instead of Specific Performance

Points to carry

Sub-section (4): the measure is section 73 of the Contract Act, so the two limbs, the exclusion of remote loss and mitigation all apply. See [Compensation for Loss or Damage Caused by Breach].

Sub-section (5): compensation must be claimed in the plaint. But the proviso is generous: where it was not, the court shall allow an amendment at any stage on just terms. So the omission is curable, and a good answer says so.

The Explanation: the fact that the contract has become incapable of specific performance does not stop the court awarding compensation under the section. This is important: a plaintiff who sues for performance and finds during the suit that the property has been sold to a protected purchaser is not turned away empty handed.

Section 22: other reliefs in the same suit

"(1) Notwithstanding anything to the contrary contained in the Code of Civil Procedure, 1908, any person suing for the specific performance of a contract for the transfer of immovable property may, in an appropriate case, ask for

(a) possession, or partition and separate possession, of the property, in addition to such performance; or

(b) any other relief to which he may be entitled, including the refund of any earnest money or deposit paid or made by him, in case his claim for specific performance is refused.

(2) No relief under clause (a) or clause (b) of sub-section (1) shall be granted by the court unless it has been specifically claimed:

Provided that where the plaintiff has not claimed any such relief in the plaint, the court shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be just for including a claim for such relief.

(3) The power of the court to grant relief under clause (b) of sub-section (1) shall be without prejudice to its powers to award compensation under section 21."

What it solves. Without section 22 a successful plaintiff might obtain a decree for a conveyance and then have to bring a second suit for possession. The section lets him have both in one proceeding, and it overrides the Code to do it.

Clause (b) is the safety net. If specific performance is refused, he may still have the refund of his earnest money or deposit in the same suit.

Sub-section (2) repeats section 21's discipline: specifically claimed, with the same curative proviso allowing amendment at any stage.

Sub-section (3) makes clear that a refund under clause (b) does not cut down the court's power to award compensation under section 21.

Section 23: a named sum is no bar

"(1) A contract, otherwise proper to be specifically enforced, may be so enforced, though a sum be named in it as the amount to be paid in case of its breach and the party in default is willing to pay the same, if the court, having regard to the terms of the contract and other attending circumstances, is satisfied that the sum was named only for the purpose of securing performance of the contract and not for the purpose of giving to the party in default an option of paying money in lieu of specific performance.

(2) When enforcing specific performance under this section, the court shall not also decree payment of the sum so named in the contract."

The question the section asks is one of construction: why was the sum named?

• To secure performance: the contract may still be specifically enforced, and the defendant cannot buy his way out by tendering the sum.
• To give the defaulter an option of paying money instead of performing: the contract gives him that choice, and paying is performance of the bargain as made.

Sub-section (2) prevents double recovery: where the court enforces specific performance under this section, it shall not also decree payment of the named sum.

Distinguish this from section 74 of the Contract Act, which decides how much is payable as compensation where a sum is named. Section 23 decides whether the naming of a sum blocks specific performance at all. Different questions. See [Liquidated Damages and Penalty].

Section 24: the bar on a second suit

"The dismissal of a suit for specific performance of a contract or part thereof shall bar the plaintiff's right to sue for compensation for the breach of such contract or part, as the case may be, but shall not bar his right to sue for any other relief to which he may be entitled, by reason of such breach."

This is the trap, and it is regularly examined. A plaintiff who sues only for specific performance, loses, and then starts a fresh suit for damages, finds the second suit barred.

Read section 24 with section 21(5) and section 22(2), because together they state the practical rule:

Claim compensation, and any other relief you want, in the specific performance suit itself. If the suit is dismissed, it is too late.

What is not barred. The plaintiff's right to sue for any other relief to which he may be entitled by reason of the breach. So a claim of a different character, for instance for possession on a title independent of the contract, survives.

The saving grace is the proviso to section 21(5), under which the court shall allow an amendment at any stage of the proceeding to include a claim for compensation. A plaintiff who realises the omission before judgment can still cure it.

The four sections in a table

A worked example

Vidya sues Yogesh for specific performance of an agreement to sell a house for one crore rupees, having paid ten lakh as earnest money.

• She wants damages for the delay as well. Section 21(1): she may claim compensation in addition to performance. Since 2018 she may not frame it as compensation in substitution of performance.
• She forgot to claim compensation in the plaint. Section 21(5) proviso: the court shall allow her to amend at any stage, on just terms.
• The court decides performance ought not to be granted but that Yogesh broke the contract. Section 21(2): it shall award compensation, measured by section 73 of the Contract Act.
• The court grants performance, but the delay has cost her rent she had to pay elsewhere. Section 21(3): performance alone not being sufficient to satisfy the justice of the case, the court may also award compensation.
• She wants the house itself, not just a conveyance. Section 22(1)(a): she may ask for possession in the same suit, and must specifically claim it.
• Specific performance is refused. Section 22(1)(b): she may have the refund of her ten lakh earnest money in that suit, and sub-section (3) preserves the court's power to award compensation under section 21 as well.
• The agreement said Yogesh would pay twenty lakh if he failed to convey, and he offers it. Section 23: if the court is satisfied the sum was named only to secure performance, it may still order him to convey; and it shall not also decree the twenty lakh.
• Her suit is dismissed and she files a fresh suit for damages. Section 24 bars it. She should have claimed compensation in the first suit, and the proviso to section 21(5) would have let her add it at any stage.

What it does NOT mean

"A plaintiff may ask for compensation instead of specific performance." Since 2018 section 21(1) allows it only in addition to performance. The court may still award compensation instead, under sub-section (2).

"Compensation not claimed in the plaint is lost." The proviso to section 21(5) requires the court to allow an amendment at any stage on just terms.

"A decree for specific performance carries possession automatically." It must be specifically claimed under section 22.

"A named sum lets the defaulter buy his way out." Only if it was named to give him that option. If it was named to secure performance, section 23 allows the contract to be enforced.

"A losing plaintiff can always sue for damages afterwards." Section 24 bars a later suit for compensation for that breach after dismissal.

"Section 21 and section 74 do the same work." Section 74 fixes the amount payable where a sum is named; section 23 decides whether the naming blocks specific performance; section 21 governs compensation in a specific performance suit.

Quick revision

• s.21(1): compensation may be claimed IN ADDITION TO performance. The words "either in addition to, or in substitution of," were replaced by "in addition to" by s.11 of the 2018 Act.
• s.21(2): performance refused but contract broken: the court shall award compensation. s.21(3): performance granted but not sufficient to satisfy the justice of the case: compensation as well.
• s.21(4): measured by s.73 of the Contract Act. s.21(5): must be claimed in the plaint, but the court shall allow amendment at any stage.
• Explanation to s.21: the contract having become incapable of specific performance does not oust the jurisdiction.
• s.22: in a suit for specific performance of a contract to transfer immovable property, the plaintiff may ask for possession, or partition and separate possession, and for any other relief including refund of earnest money if performance is refused. Must be specifically claimed; amendment allowed. Notwithstanding the Code of Civil Procedure 1908.
• s.23: a sum named for breach is no bar where it was named only to secure performance and not to give the defaulter an option to pay instead. The court then shall not also decree that sum.
• s.24: dismissal of a specific performance suit BARS a later suit for compensation for that breach, though not a suit for any other relief.

Test yourself

1. What did the 2018 amendment change in section 21? Section 11 of the Specific Relief (Amendment) Act 2018 substituted the words "in addition to" for ", either in addition to, or in substitution of," in sub-section (1), with effect from 1 October 2018. A plaintiff may therefore claim compensation only in addition to specific performance and no longer in substitution of it, although the court retains its power under sub-section (2) to award compensation where it decides that performance ought not to be granted.

2. Must compensation be claimed in the plaint? Yes, by sub-section (5), which provides that no compensation shall be awarded under the section unless the plaintiff has claimed it in his plaint. The proviso softens this considerably: where he has not, the court shall, at any stage of the proceeding, allow him to amend the plaint on such terms as may be just to include the claim.

3. What may a plaintiff ask for under section 22? Possession, or partition and separate possession, of the property in addition to specific performance; and any other relief to which he may be entitled, including the refund of any earnest money or deposit paid by him, in case his claim for specific performance is refused. The reliefs must be specifically claimed, though the court must allow an amendment to include them, and the section operates notwithstanding anything to the contrary in the Code of Civil Procedure 1908.

4. Does a sum named as payable on breach bar specific performance? Not necessarily. Under section 23 a contract otherwise proper to be specifically enforced may be enforced despite such a sum, and despite the defaulter's willingness to pay it, if the court is satisfied that the sum was named only to secure performance and not to give the party in default an option of paying money in lieu of performance. Where performance is so enforced the court shall not also decree payment of the named sum.

5. What is the effect of section 24, and how is it avoided? The dismissal of a suit for specific performance of a contract or part of it bars the plaintiff's right to sue for compensation for the breach of that contract or part, though not his right to sue for any other relief to which the breach entitles him. It is avoided by claiming compensation in the specific performance suit itself, and a plaintiff who omitted to do so may rely on the proviso to section 21(5), under which the court shall allow an amendment at any stage before judgment.